D.R. Horton Earnings Slide 65% on Charges
D.R. Horton, the largest U.S. home builder, said quarterly profit fell sharply, due in part to lower land values, but results beat the average Wall Street forecast.
Fort Worth, Texas-based D.R. Horton said earnings in the fiscal first quarter ended Dec. 31 fell 65% to $109.7 million, or 35 cents a share, but beat analysts average forecast of 33 cents a share.
Horton shares were up strongly , and the home-builders sector as a whole rose 2.5% according to the Dow Jones U.S. Home Construction Index.
Horton's results included charges totaling $77.7 million, or 15 cents a share, for land options forfeited and for the lower value of inventory of homes built and not yet sold.
"There's the feeling that maybe the worst is behind us, that the housing market is weak but you're not seeing a real calamity in the results of these companies," BB&T Capital Markets analyst Jack Kasprzak said.
Home builders have been able to absorb large charges for land value write-downs without jeopardizing their balance sheets, Kasprzak added.
According to CNBC's Diana Olick, homebuilders have posted $1.9 billlion in land losses so far this earnings season.
Goldman Sachs Upgrades Sector to Neutral
Additionally, prior to Horton's quarterly report, Goldman Sachs upgraded its shares to a "buy" from a "neutral," and upgraded the sector to a "neutral," saying the sharp decline in the housing market may be slowing.
According to Goldman Sachs, investors have priced in concerns about large write-offs into the values of the homebuilder stocks. Although the weakening trends could slow in the housing market, there still could be more bad news ahead for the sector.
Robert Curran, a homebuilding analyst at Fitch Ratings, said the companies will be facing depleted backlogs.
"It is those backlogs, with low margins, that will hurt these year-over-year comparisons, at least in the first and second quarters of this year," Curran told CNBC. "Remember, that the margins in 2006 were steadily coming down quarter-by-quarter, so the toughest comparisons in 2007 will be in the first and second quarters of the year."
During the fiscal first quarter, D.R. Horton closed on the sale of 10,202 homes, more than the 9,891 a year earlier. But home-building revenue stayed the same at $2.8 billion, as margins deteriorated 9.2 percentage points to 18.6%.
Horton Orders Fell 23.5% In First Quarter
Earlier in January, Horton said orders during the quarter fell 23.5% to 8,771 homes, with the drop the most severe in the Northeast. The value of the homes on order declined even more, down 28 percent to $2.3 billion, as the company used incentives to lure buyers.
Would-be buyers canceled orders at a rate of 33%, down from 40% the prior quarter, but still higher than its normal range of 16% to 20%.
D.R. Horton has been downshifting its operations to better conform with the fall-off of the U.S. housing market.
Since a peak in March 2006, the company has slashed the number of lots it controls by 25% to 297,000; it has cut the number of homes under construction by 35% to 26,000 from a June 2006 peak of 40,000.
D.R. Horton did not issue a forecast for results for the year. It ended the quarter with a backlog of 16,694 homes under contract with a value of $4.7 billion, down from 20,816 homes
worth $6.2 billion at the end of 2005.